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An Analysis Of Section 138 Of The Negotiable Instruments Act

An Analysis Of Section 138 Of The Negotiable Instruments Act

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Published by: gnsr_1984 on Feb 08, 2011
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Introduction:Advent of cheques in the market have given a new dimension to the commercial and corporate world,its time when people have preferred to carry and execute a small piece of paper called Cheque thancarrying the currency worth the value of cheque. Dealings in cheques are vital and important not onlyfor banking purposes but also for the commerce and industry and the economy of the country. Butpursuant to the rise in dealings with cheques also rises the practice of giving cheques without anyintention of honoring them. Before 1988 there being no effective legal provision to restrain peoplefrom issuing cheques without having sufficient funds in their account or any stringent provision topunish them in the vent of such cheque not being honoured by their bankers and returned unpaid. Of course on dishonor of cheques there is a civil liability accrued. However in reality the processes toseek civil justice becomes notoriously dilatory and recover by way of a civil suit takes an inordinatelylong time. To ensure promptitude and remedy against defaulters and to ensure credibility of theholders of the negotiable instrument a criminal remedy of penalty was inserted in NegotiableInstruments Act, 1881 in form of the Banking, Public Financial Institutions and NegotiableInstruments Laws (Amendment) Act, 1988 which were further modified by the NegotiableInstruments (Amendment and Miscellaneous Provisions) Act, 2002[3]. This article endeavours toelucidate the penal provision[4] light of the amendments and the judicial interpretations.Scope:Of the ten sections comprising the chapter of the Act, section 138 creates statutory offence in thematter of dishonour of cheques on the ground of insufficiency of funds in the account maintained bya person with the banker. Section 138 of the Act can be said to be falling either in the acts which arenot criminal in real sense, but are acts which in public interest are prohibited under the penalty orthose where although the proceeding may be in criminal form, they are really only a summary modeof enforcing a civil right. Normally in criminal law existence of guilty intent is an essential ingredientof a crime. However the Legislature can always create an offence of absolute liability or strict liabilitywhere ‘mens rea’ is not at all necessary.While elucidating on this aspect the Kerala High Court in K. S. Anto v. Union of India held that:
"Knowledge or reasonable belief, that pre requisite could be statutorily dispensed with inappropriate cases by creating strict liability offences in the interest of the Nation."
Further the creation of the strict liability is an effective measure by encouraging greater vigilance toprevent usual callous or otherwise attitude of drawers of cheques in discharge of debts or otherwiseattitude of drawers of cheques in discharge of debts or otherwise. The words as appearing in clause(b) of S. 138 cannot be construed even to imply failure without reasonable cause in view of theexplicit language in which the provision is couched, the principle of strict liability incorporated in themain enacting clause.Circumstances of dishonour:The circumstances under which dishonour of cheque takes place or that may contribute to thesituation would be irrelevant and are required to be totally ignored.In
Rakesh Nemkumar Porwal v. Narayan Dhondu Joglekar 
the Bombay High Court held that:"
 A clear reading of Section 138 leaves no doubt in our mind that the circumstances under which sucha dishonour takes place are required to be totally ignored. In such case, the law only takescognizance of the fact that the payment has not been forthcoming and it matters little that any of the manifold reasons may have caused that situation
."
 
Ingredients and requirements of the penal provisions:Section 138 creates an offence for which the mental elements are not necessary. It is enough if acheque is drawn by the accused on an account maintained by him with a banker for payment of anyamount of money to another person from out of that account for discharge in whole or in part, of anydebt or other liability due. Therefore, whenever the cheques are on account of insufficiency of fundsor reasons referable to the drawer’s liability to provide for funds, the provisions of section 138 of theAct would be attracted, provided the following conditions are satisfied:1. Existence of a live accountExistence of a "live account" at the time of issue of cheque is a condition precedent for attractingpenal liability for the offence under this section. A cheque cannot be issued de hors an accountmaintained by its drawer with the banker. When the cheque is returned by the bank unpaid becauseof the account of money standing to the credit of the cheque, to make demand for payment asprovided for payment as indicated in clause (b) of the proviso. The words "that account" in thesection denote to the account in respect of which the cheque was drawn. No doubt if any personmanages to issue a cheque without an account with the bank concerned its consequences would notsnowball into the offence described under section 138 of the Act. For the offence under section 138of the Act there must have been an account maintained by the drawer at the time of the cheque wasdrawn.2. Issue of Cheque in discharge of a debt or liabilityThe cheque issued unpaid by the bank must have been issued in discharge of a debt or other liabilitywholly or in part. Where a cheque is issued not for the purposes of discharge of any debt or otherliability, the maker of the cheque is not liable for prosecution under section 138 of the Act. A chequegiven as a gift or for any other reasons and not for the satisfaction of any debt or other liability,partly or wholly, even if it is returned unpaid will not meet the penal consequences.If the above conditions are fulfilled, irrespective of the mental conditions of the drawer he shall bedeemed to have committed an offence, provided the other three requisites are fulfilled:a) Presentation of the cheque within six months or within the period of its validityThe cheque must have been presented to the bank within a period of six months from the date onwhich it is drawn or its period of validity, whichever is earlier. Thus if a cheque is valid for threemonths and is presented to the bank within a period of six months the provisions of this section shallnot be attracted. However if the period of validity of the cheque is not specified or prescribed thecheque is presented within six months from the date the cause of action can arise. The six monthsare taken from the date the cheque was drawn.b) Return of the cheque unpaid for reason of insufficiency of fundsThe cheque must be returned either because the money standing to the credit of that account isinsufficient to honour the cheque or that it exceeds the arrangement made to be paid from thataccount by an agreement with the bank. Even if the cheque is returned with the endorsement"account closed" section 138 is attracted[15]c) Issue of the notice of dishonour demanding payment within thirty days of receipt of informationas to dishonour of the cheque.The payee or the holder in due course of the cheque has to give a notice in writing making a demandfor payment of the said amount of money to the drawer of the cheque. Such notice must be givenwithin 30 days[16] of information from the bank regarding the return of cheque as unpaid[17].d) Failure of the drawer to make the payment within fifteen days of the receipt of the paymentAfter the receipt of the above notice the drawer of the cheque has to make payment of said amountof money to the payee or to the holder in due course of the cheque within 15 days of the receipt of the notice. If the payment is not made after the receipt of the notice within stipulated time a cause
 
of action for initiating criminal proceedings under this section will arise.Constitutional validity of the provisionsIn B. Mohana Krishna v. Union of India, the question came up for consideration that whether thepresumption raised in section 139 that the holder of the cheque received the cheque of the naturereferred to in section 138, unless the contrary is established is violative of Article 20 (3) of theConstitution of India. The Court while answering negative held that:"
Unless a person is compelled to be a witness against himself Article 20 (3) has no application. The person charged under section 138 is not compelled to be a witness against himself. The presumptionof the nature incorporated in section 139 is a common feature in criminal statutes for examplesection 12 of the Protection of Civil rights Act. The presumption under section 139 in favour of holder of cheque would not, therefore be violative of Article 20 (3)."
Further such imposition of strict liability was put to judicial scrutiny on grounds of unreasonablenessand arbitrariness in Mayuri Pulse Mills v. Union of India where the Bombay High Court held that:
"Normally in Criminal law existence of a guilty intent is an essential ingredient of a crime and the principle is expressed in the maxim ‘actus non facit rum nisi mens sit rea’. This is a general principle.However the legislature can always create an offence of absolute liability or strict liability are justified and cannot be said to be unreasonable."
Section 138 was also put to test in Ramawati Sharma v. Union of India in light of Article 21 of theConstitution of India where the court held that;
"Mere taking of loan is not, thus, made punishable under certain circumstances and after followingcertain conditions. It may not, therefore, be stated that the liberty of a person was being curtailed by an arbitrary procedure or that such a provision is violative of Article 21 of the Constitution"
In K.S. Anto v. Union of India the question of double jeopardy as enshrined in Article 20 (2) in light of section 138 and section 420 of the Indian Penal Code where the court held that:
"Offences under section 138 of the Negotiable Instruments Act and section 420 of the Penal Code aredifferent and the ingredients are different and the ingredients are also different. Convictions for different offences separately is not barred under article 20 (2). In spite of prosecutions and convictions under section 138, there will be no constitutional bar in prosecution for an offence punishable under section 420 of the Penal Code and a prosecution will be if such an offence is madeout."
Question of maintainability of criminal charge with a civil liability:There is nothing in law to prevent the criminal courts from taking cognizance of the offence, merelybecause on the same facts, the person concerned might also be subjected to civil liability or becausecivil remedy is obtainable. Civil and criminal proceedings are co extensive and not exclusive. If theelements of the offence under section 138 of the Negotiable Instruments Act are made out on theface of the complaint petition itself, enforcement of the liability through a civil court will notdisentitle the aggrieved person from prosecuting the offender for the offence punishable undersection 138 of the ActConclusionThough insertion of the penal provisions have helped to curtail the issue of cheque lightheartedly or

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